How we change what others think, feel, believe and do

Auctions

Disciplines > Marketing > Pricing > Auctions

Description | Example | Discussion | See also

Description

A way of selling when you are unsure of pricing or demand is to sell via an auction. There are many kinds of auction that can be used, including three major methods of:

• Standard auction: Bidders offer a price. Others can see this bid and can offer more money, within a limited time period.
  • Also known as 'English' or 'Open ascending price' auction.
• Dutch auction: The price starts high, then is steadily lowered. The first person to bid gets their offer accepted.
  • Also known as 'Open descending price' auction.
• Blind auction: All bidders offer a sealed bid. The highest bid wins. Nobody knows what others have bid.
  • Also known as 'sealed first price' or 'first-price sealed-bid' auction.

Beyond these, there are a wide range of auctions and variants that may be used within these auctions, such as charging bidders an entrance fee, having 'rounds' where bidders are knocked out, and 'buy now' pricing where customers can bypass the auction and buy beforehand.

Example

A retail store holds an auction outside their front door of goods they need to shift. They attract a lot of attention as customers hope to be able to get a bargain.

An online electronics retailer holds monthly auctions to sell off stock that has not moved or which is likely to decline in value over time.

Discussion

Sellers want to get the best price for their goods, and may worry that they are over-pricing when sales are slow, or are pricing too low when sales go too quickly. While retailers seldom use auctions they are used in a wide range of contexts.

Auctions are generally designed to encourage bidders to make as high a bid as possible. The standard auction can easily draw people in so they bid far higher than they originally intended, especially if they feel a sense of competition with other bidders and it turns into a power and status game of 'who can afford the most'. Dutch auctions

The concerns of sellers may be protected when a 'minimum bid' is set. This may not be revealed until the final bid is received, in which case a 'no sale' may be announced if all bids are too low.

The auction may be run by auctioneers, who act as marketing and trust-broking middle people who take a cut, typically a percentage of the selling price, from one or both of the seller and buyer. This helps motivate the auctioneer to get the highest price possible.

Online auctions allow for a much wider bidding audience and can be run automatically. Traditional physical auctions can require significant effort to publicize and run.

See also

Social Proof principle, Peer Pressure Principle, Scarcity principle